A Piece of the Pie? The Effects of Familial Control Enhancements on the Use of Broad‐Based Employee Ownership Programs in Family Firms

Abstract

While family firms tend to be highly committed to their employees, scholars contend that founding family owners are likely hesitant when it comes to sharing ownership broadly with nonfamily employees. Taking a heterogeneous view of family firms, this study investigates the implications of different familial control‐enhancing mechanisms on the use of broad‐based employee ownership programs (BEOPs) among publicly‐traded family firms. Based on a five‐year panel data set of S&P 500 family firms, the findings indicate that certain control‐enhancing mechanisms can cause family owners to frame their decision to use BEOPs differently. Essentially, family firms with family CEOs, regardless of whether the CEO is a founder or descendant, have a decreased likelihood of using BEOPs in spite of the direct control that family owners have over the firm's operations. Conversely, when family owners hold dual‐class shares, which enhance shareholder voting power, family firms are more likely to use BEOPs. Furthermore, the likelihood of family firms with family CEOs using BEOPs increases when the family holds dual‐class shares. Moreover, there is no significant difference between founder and descendant CEOs, as both are less resistant to using BEOPs when a dual‐class share structure is in place. These findings have implications for HR practitioners working in family firms given the influence that family owners can have on the firm's HR activities, namely BEOPs.

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